Man claims he lost around $25,000 worth of bitcoins, accuses MtGox of fraud.

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An Illinois man has filed a class-action lawsuit against MtGox, alleging consumer fraud, negligence, breach of fiduciary duty, and breach of contract, among other allegations. The case appears to be the first such class-action suit filed in the United States against the failed Bitcoin exchange.

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In a 32-page filing submitted Thursday to the Northern District of Illinois, Gregory Greene says that he first encountered MtGox in late 2011 and signed up for an account. Greene, like many others, attempted to withdraw his bitcoins from MtGox once the company announced that it had sustained a massive security breach. However, given the company’s sudden shutdown and subsequent application for bankruptcy protection, Greene was unable to do so.

The lawsuit defines members of the class as “[a]ll persons in the United States who had bitcoins or Fiat Currency stored with Mt. Gox on February 7, 2014," which the filing speculates could be hundreds of thousands of people.

MtGox CEO Mark Karpeles did not respond to Ars’ request for comment concerning the lawsuit.

Greene’s court filing states that had he known of the company’s “substandard security procedures that left his bitcoins vulnerable to theft, he would have paid substantially less for Mt. Gox’s services or would not have paid at all.”

The document continues:

Worse yet, at the time Mt. Gox shut down, Greene had used Mt. Gox’s services to store and protect bitcoins with a present value of approximately $25,000 dollars. Despite his repeated attempts, Greene has been unable to withdraw his money from Mt. Gox since early February 2014. Prior to February 7, 2014, Plaintiff’s bitcoins had a market value of nearly double their value following Mt. Gox’s prohibition on withdrawals and eventual shutdown, which undeniably caused a sharp decline in the market value of bitcoins.

While this represents possibly the first such suit against MtGox in the United States, there are other lawsuits currently pending that allege shady dealings by other Bitcoin-related companies, including one targeting Butterfly Labs, a Kansas-based manufacturer of Bitcoin miners.

We were investigating the issue previously and were hoping that MtGox was going to step up to the plate, give a full accounting and take care of their customers. When it became clear that their delay was simply to gain time to protect themselves, we filed.

Our phone has been ringing off the hook and we've been speaking to people from countries spread throughout the world asking us to expand the action to include them. We are currently researching the laws in those companies and will make some decisions shortly.

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Cyrus Farivar
Cyrus is a Senior Tech Policy Reporter at Ars Technica, and is also a radio producer and author. His latest book, Habeas Data, about the legal cases over the last 50 years that have had an outsized impact on surveillance and privacy law in America, is out now from Melville House. He is based in Oakland, California. Emailcyrus.farivar@arstechnica.com//Twitter@cfarivar

123 Reader Comments

If it isn't a regulated or government-backed currency, how is a lawsuit like this to be treated?

Is it like if any bank loses depositors' money and isn't backed by some sort of deposit insurance (FDIC, NCUA, etc), or is it likely to be seen as "gambling losses" since it's not centralized somewhere?

Very curious of the logistics of who is responsible for issues with a decentralized currency.

If it isn't a regulated or government-backed currency, how is a lawsuit like this to be treated?

Is it like if any bank loses depositors' money and isn't backed by some sort of deposit insurance (FDIC, NCUA, etc), or is it likely to be seen as "gambling losses" since it's not centralized somewhere?

Very curious of the logistics of who is responsible for issues with a decentralized currency.

Fraud is fraud. If you pay me for a service, and I screw you over, you have legal recourse.

If I was a good person, I'd feel sorry for this man. But jumping as far off the grid as possible and then trying to crawl back into the same protections of civil society you were trying run away from so you could get rich? My only response is

If it isn't a regulated or government-backed currency, how is a lawsuit like this to be treated?

Is it like if any bank loses depositors' money and isn't backed by some sort of deposit insurance (FDIC, NCUA, etc), or is it likely to be seen as "gambling losses" since it's not centralized somewhere?

Very curious of the logistics of who is responsible for issues with a decentralized currency.

I suspect that the guy in this suit is screwed(handling an even slightly complex international lawsuit should make losing only $25k look like fun in short order, and Mt.Gox is probably more broke than WinME, so there isn't anything to collect); but there shouldn't be anything fundamentally novel on the table just because some people call bitcoins 'currency'.

If it is of some value; but isn't specially regulated as currency, or some other specific financial instrument, it's just like every other commercial fraud involving goods and commodities. Bread and butter stuff.

The fact that the store involved was playing 'Actual Financial Institution Cosplay!' at the time they failed horribly isn't really salient.

If I was a good person, I'd feel sorry for this man. But jumping as far off the grid as possible and then trying to crawl back into the same protections of civil society you were trying run away from so you could get rich? My only response is

I don't know if this specific guy is actually an example or not, he could just be a basic day-trader type who thought he'd found a Surefire Wealth System and lost; bitcoins do attract 'gone galt' types; but they also attract people looking for new things to speculate on, so could go either way.

That said, I think the general term for the phenomenon is 'Ren-faire libertarian'. Just as a ren-faire is a version of the middle ages where the Princess/peasant ratio is...ahistorically... high, the starvation rates low, and the option to leave at the end of the day available, there are those who think that 'libertarian' means being a captain of industry who doesn't pay taxes, rather than working in said captain's toxin smelter. Endless comedy.

No, I was referring to the trust of holding your Bitcoins as in a wallet. If there is no bank or bank account that gives you a guarantee then your own wallet is the only safe place for your Bitcoins, it has nothing to do with their value.

If it isn't a regulated or government-backed currency, how is a lawsuit like this to be treated?

Is it like if any bank loses depositors' money and isn't backed by some sort of deposit insurance (FDIC, NCUA, etc), or is it likely to be seen as "gambling losses" since it's not centralized somewhere?

Very curious of the logistics of who is responsible for issues with a decentralized currency.

I imagine it'd be treated like a lawsuit involving any other commodity. If I was into futures trading, and someone walked away with my contracts on frozen, concentrated orange juice, then that'd be treated as fraud, too.

I don't know if this specific guy is actually an example or not, he could just be a basic day-trader type who thought he'd found a Surefire Wealth System and lost; bitcoins do attract 'gone galt' types; but they also attract people looking for new things to speculate on, so could go either way.

That said, I think the general term for the phenomenon is 'Ren-faire libertarian'. Just as a ren-faire is a version of the middle ages where the Princess/peasant ratio is...ahistorically... high, the starvation rates low, and the option to leave at the end of the day available, there are those who think that 'libertarian' means being a captain of industry who doesn't pay taxes, rather than working in said captain's toxin smelter. Endless comedy.

If he was a day trader, then I'd laugh harder because if you're that deep in to the market YOU SHOULD KNOW BETTER.

Since I'm rolling in epicaricacy anyway, I'm kind of hoping the IRS uses this claim as evidence while charging him with evading gains taxes.

But did he REALLY lose $25,000? How much did he pay for those Bitcoins? If I pay $10 for something that increases in value to $1,000 then I lose it or it gets stolen, I'm technically only out $10. I've lost out on the potential of selling that item for $1,000, but I wouldn't have lost $1,000.

But did he REALLY lose $25,000? How much did he pay for those Bitcoins? If I pay $10 for something that increases in value to $1,000 then I lose it or it gets stolen, I'm technically only out $10. I've lost out on the potential of selling that item for $1,000, but I wouldn't have lost $1,000.

You've also lost out on the use of said asset, such as the ability to borrow against it.

It sounds like Mt.Gox was not even an exchange, but was functioning as a bank.

Your local First National Bank that uses dollars could call itself an "exchange" too, by letting you use its services to pay money from you to someone else via a check, debit card or credit card, and charging you a fee for this exchange service.

I'm still curious as to how bitcoins actually exist. They're not a physical coin that you can hold in your hand (despite what the graphs at the top of these articles show). And I don't know what a "private wallet" or "digital wallet" are. Are bitcoins numeric code? Can they exist in more than one place at the same time? Can they be counterfeited into existence? . . . Anyone?

No, I was referring to the trust of holding your Bitcoins as in a wallet. If there is no bank or bank account that gives you a guarantee then your own wallet is the only safe place for your Bitcoins, it has nothing to do with their value.

But if there is no third party you can trust with your 'currency' (not even an exchange), and no method of assuring that your Bitcoins still exist in a way that you understand them after a third party transaction, then there is no safe method of fair trade, no market value, no integrity to the 'economy' at all.

The dollar in my pocket only has value because a trusted third party vouches for it. Without that, it's just a collector's item.

But did he REALLY lose $25,000? How much did he pay for those Bitcoins? If I pay $10 for something that increases in value to $1,000 then I lose it or it gets stolen, I'm technically only out $10. I've lost out on the potential of selling that item for $1,000, but I wouldn't have lost $1,000.

By this logic If I received a Babe Ruth rookie card in a pack I had bought when they first went on sale, and you stole it from me you would suggest that I should only feel as though I lost a fraction of a nickel? Would you expect to only be charged with petty theft?

But did he REALLY lose $25,000? How much did he pay for those Bitcoins? If I pay $10 for something that increases in value to $1,000 then I lose it or it gets stolen, I'm technically only out $10. I've lost out on the potential of selling that item for $1,000, but I wouldn't have lost $1,000.

By this logic If I received a Babe Ruth rookie card in a pack I had bought when they first went on sale, and you stole it from me you would suggest that I should only feel as though I lost a fraction of a nickel? Would you expect to only be charged with petty theft?

if it were my card, the loss would depend on how fatal the bullet was to the person trying to steal it.

This guy is doing bitcoin wrong. The whole point of bitcoin is to stay away from centralized authority which a court is. What next will he even accept payment in USD seeing as that is all the court can give him?